The FTSE 100 sunk to its lowest level in eight years as the Federal Reserve took emergency action to stem the damage caused by the coronavirus pandemic, sending panic through markets around the world.
In London, the index of large company shares dropped 8 per cent to below 5,000 points.
Analysts warned that a global recession is now all but inevitable as European countries shut their borders and US cities including New York closed down restaurants in a bid to halt the rapid spread of Covid-19.
Unprecedented social distancing measures, now accepted to be necessary to halt the virus’ spread, threaten to bring major economies to a standstill.
As people stay home and large gatherings are called off, economies face deep reductions in both demand for and supply of goods and services.
Those fears prompted decisive and co-ordinated action by central banks to slash interest rates and make more cash available in the hope that cheap borrowing will boost economic activity.
On Sunday, Fed chairman Jerome Powell warned that the pandemic was having a “profound” impact on the economy as the US central bank slashed interest rates to near zero per cent and announced it would pump more money into the financial system by purchasing $700bn of assets.
Central banks in the eurozone, the UK, Japan, Switzerland and Canada have also announced their own monetary stimulus measures.
Instead of reassuring markets as the Fed intended, the move appeared to deepen concerns, causing a further sell-off of shares as markets weighed up the damage coronavirus may wreak on a host of companies.
Over the weekend, Sir Richard Branson urged the UK government to back a £7.5bn airline industry bailout while train companies also reportedly called for government support.
Both sectors have been hit by plunging passenger numbers that will almost certainly worsen as more severe restrictions are placed on people’s movements.
British Airways owner IAG announced on Monday it would cancel 75 per cent of flights and EasyJet said it would have to ground most of its planes. IAG shares fell 21 per cent while EasyJet was down 18 per cent on Monday.
Andrew Lowcock, head of personal investing warned that there may be worse to come.
“Until we see an end in sight for the virus and the number of infections globally peak, markets are going to be extremely volatile, and its likely going to get worse before it gets better, so investors must brace themselves in the near term,” Mr Lowcock said.
“However, once the infection rate peaks and the world gets back to some semblance of normality, markets could snap back as fast as they fell.
Trying to time when that might be is “impossible”, he said.
With central banks now running out of ammunition as interest rates hit historic lows, pressure is mounting on governments to take decisive action to spend money in support of their respective national economies.
Denmark’s government cut a deal with unions and companies that will see that state pay 75 per cent of wages for private-sector employees whose jobs are at risk due to coronavirus.
For three months the government has offered to pay three-quarters of employees’ salaries up to 23,000 Danish crowns (£2,786) per month, while companies pay the remaining 25%.
“If there’s a big drop in activity, and production is halted, we understand the need to send home employees. But we ask you: Don’t fire them,” Danish prime minister Mette Frederiksen said on Sunday.